MINISTRY OF PETROLEUM & NATURAL GAS

BACKGROUND MATERIAL FOR

ECONOMIC EDITORS’ CONFERENCE 2008

BACKGROUND

Efficient and reliable energy supplies are a precondition for accelerating the
growth of the Indian economy. While the energy needs of the country are going to
increase at a rapid rate in the coming decades, the energy resources that are
indigenously available are limited and may not be sufficient in the long run to
sustain the process of economic development. The Ministry of Petroleum and
Natural Gas is mandated to take measures for exploration and exploitation of
petroleum resources including natural gas and coal bed methane, production,
supply, distribution, marketing and pricing of petroleum including natural gas, coal
bed methane and petroleum products.

2. During the current financial year (2008-09), production target for crude oil
is 36.332 Million Metric Tonnes (MMT), which is 6.5% higher than the actual
crude oil production of 34.106 MMT in 2007-08. The production target for
natural gas [including Coal Bed Methane (CBM)] for 2008-09 is 42.281 Billion
Cubic Metre (BCM) which is 30% higher than the actual production of 32.405
BCM in 2007-08.
 I. UPSTREAM SECTOR

1. EXPLORATION OF DOMESTIC OIL AND GAS

1.1. India has an estimated sedimentary area of 3.14 million square kilometer,
comprising 26 sedimentary basins. At present 1.38 million square kilometer are
held under Petroleum Exploration Licenses in 18 basins. Before implementing the
New Exploration Licensing Policy (NELP), only 11% of Indian sedimentary
basins was under exploration. Under NELP, which was approved by the
Government in 1997 and operationalised since January 1999, 66 oil and gas
discoveries have been made by private/joint venture (JV) companies in 18
blocks, which have added more than 600 million metric tonnes of oil equivalent
hydrocarbon reserves. As on 1.4.2008, investment made by Indian and foreign
companies was of the order of US $ 5988 million, out of which, US $ 2067 million
was by national oil companies, US$ 3332 million by Indian private companies and
US $ 589 million by foreign companies. At present, after concluding six rounds of
NELP, 162 production sharing contracts have been signed and area under
exploration has increased four times i.e. covers 44% of Indian sedimentary
basins. During XI plan period, area under exploration has been targeted as 80%
of total area of Indian sedimentary basins. The award of Seventh round of NELP
blocks will increase area under exploration to the tune of 5%. By 2015, 100% of
the Indian sedimentary basin area is likely to be under exploration.

1.2. The Number of NELP blocks awarded in previous six rounds is given
below:
Parameter NELP NELP NELP NELP NELP NELP
I II III IV V VI
No. of Blocks Offered 48 25 27 24 20 55

No. of Blocks Bid For 28 23 24 21 20 52

No. of Bids Received 45 44 52 44 69 165

No. of blocks awarded 25 23 23 21 20 52

No. of PSC signed 24 23 23 20 20 52

Area Awarded
1,94,735 2,63,050 2,04,588 1,92,810 1,15,180 3,06,200
(Square KM)

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1.3. In seventh round of NELP, 181 bids were received for 45 exploration
blocks against 57 offered blocks. The break up of 57 exploration blocks was 19
deepwater blocks, 9 shallow water blocks and 29 on land blocks. No bid was
received for 12 exploration blocks comprising of 7 deepwater, 2 shallow water
and 3 on land blocks. Bid evaluation report submitted by DGH was considered
by ECS on 30.9.2008. In the Seventh round of NELP, exploration blocks are
likely to be awarded after approval.

2. DOMESTIC RESERVES AND PRODUCTION

2.1. Total Prognosticated Resources, in terms of oil and oil equivalent gas
(O+OEG) of the country have been estimated about 28-32 billion tonnes. With a
level of oil production at 34 million metric tonnes (MMT), and natural gas
production at 32.4 billion cubic metre (BCM) in 2007-2008, as on 1.4.2008,
balance oil and gas recoverable reserves were of the order of 1.86 Billion metric
tonnes of oil equivalent.

2.2. The following tables give estimates of crude oil and natural gas production:

Crude Oil Production

(Thousand Metric Tonnes)
State/Source 2003- 2004- 2005- 2006- 2007- 2008-09*
04 05 06 07 08 (Apr-Sep)
Onshore
Gujarat 6131 6187 6251 6212 6178 2982
Assam/ Nagaland 4592 4703 4474 4400 4359 2359
Tamil Nadu 375 391 385 353 299 137
Andhra Pradesh 281 226 216 252 280 145
Arunachal Pradesh 77 83 104 109 101 25
Total Onshore 11456 11590 11430 11326 11217 5648
Share of PSUs 11382 11516 11329 11165 11025 5627
Share of Private/JV 74 74 101 161 192 21
Offshore
Share of PSUs 17677 18165 16309 17993 17994 8970
Share of Private/JV 4240 4226 4451 4669 4895 373
Total Offshore 21917 22391 20760 22662 22889 9343
Grand Total 33373 33981 32190 33988 34106 14991
* Provisional

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 Natural Gas Production
(Million Cubic Metres)
State/Source 2003- 2004- 2005- 2006- 2007- 2008-09*
04 05 06 07 08 (Apr-Sep)
Onshore
Gujarat 3517 3710 3831 3294 2931 1039
Assam/Nagaland 2204 2249 2408 2526 2601 1288
Andhra Pradesh 1927 1707 1663 1525 1567 781
Tamil Nadu 605 678 906 1130 1169 619
Tripura 508 497 480 520 533 278
Rajasthan 168 213 242 242 255 105
Arunachal Pradesh 44 40 48 35 29 11
Total Onshore 8973 9094 9578 9272 9085 4121
Share of PSU 7666 7668 8021 8141 8219 4058
Share of Private/JV 1307 1426 1557 1131 866 63
Offshore
Share of PSU 17805 17313 16823 16567 16459 8384
Share of Private/JV 5184 5356 5801 5908 6861 639
Total Offshore 22989 22669 22624 22475 23320 9023
Grand Total 31962 31763 32202 31747 32405 13144
* Provisional

3. CRUDE OIL & NATURAL GAS PRODUCTION FROM KG BASIN

3.1. First crude oil production from MA field in deepwater block D6 in Krishna
Godavari Basin was commenced on 17th September 2008 with initial production
of about 5000 barrels of crude oil per day by Reliance Industries Limited (RIL)
and NIKO Resources Limited. Presently, crude oil production is from two wells at
a water depth of about 1200 metres. This crude oil is sweet crude having 42
degree API, which can be processed in the country. RIL has entered into
agreement with HPCL for supply of this crude oil. The average crude oil
production in September 2008 was about 10,000 barrels per day, which is likely
to increase about 34,000 barrels per day as peak production in next year. Crude
oil production life of this field is about 11 years.

3.2. Natural gas development project for development of gas discoveries D1&
D3 in block D6 of KG Basin is being undertaken by Reliance Industries Limited
(RIL) and NIKO Resources Limited. The first gas production from this block is
expected by end of 2008 with initial production at the rate of 15 MMSCMD and
peak production of 80 MMSCMD.

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4. IMPROVED OIL RECOVERY/ ENHANCED OIL RECOVERY (IOR/EOR)
Work programmes have been undertaken primarily by ONGC for IOR/EOR
in its 15 largest fields, which account for 80% of ONGC’s reserves and
production. 18 schemes of IOR/EOR have already been approved to increase
recovery factor from 14 ageing oil & gas fields of ONGC in Gujarat, Assam and
Offshore at an estimated cost of about Rs.14,090 crore. The expected gain in oil
from these schemes will be around 110 MMT by 2020. 13 schemes have been
completed (4 in offshore and 9 in Gujarat). 5 schemes are under implementation
(1 offshore, 1 in Gujarat and 3 in Assam). ONGC has drilled 591 wells till
September, 2008. The cumulative incremental oil gain was of the order of 39.8
MMT up to March, 2008. ONGC has made investment of Rs.13867 crore up to
September, 2008.

5. DEVELOPMENT OF MARGINAL FIELDS OF ONGC

Concerted efforts have been taken up to put new & marginal fields on
production through in-house resources as well as through service contract. Out of
total 165 marginal fields, ONGC has already monetized 56 fields (production
started in 39 fields) and out of remaining 109 fields 67 are being monetized in-
house by ONGC, 20 fields through service contracts and 22 fields will be offered.
During XI Plan period, a total incremental production of about 14 MMT of oil +
condensate and 16 BCM of gas is envisaged from marginal fields of ONGC.

6. DOMESTIC EXPLORATION OF OTHER GASEOUS FUEL

6.1 Coal Bed Methane (CBM)

The Government had approved a comprehensive CBM policy in July, 1997
for exploration and production of CBM gas. As of now, 23 CBM Blocks were
awarded through competitive international bidding under first three rounds of
CBM policy, under which blocks are being operated by technically competent
companies. Two blocks were awarded on nomination basis and one block
through the FIPB route. Twenty six CBM exploration blocks are under operation
and 6 TCF reserves have already been established in 4 CBM blocks. First
commercial production of CBM has commenced from July 2007 at the rate of
about 7,500 cubic metres per day. Preparation for launch of CBM IV is in
progress.

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6.2 Underground Coal Gasification (UCG)
ONGC entered into an Agreement of Collaboration (AOC-MOU) with
National Mining Research Centre-Skochinsky Institute of Mining (NMRC-SIM) in
Russia. In the selected Vastan mine block, seismic survey was carried out and
18 boreholes were drilled for detailed UCG site characterization. Based on
geological, hydrological and geo-mechanical data analysis, Vastan in Gujarat and
Hodu Sindri in Rajasthan have been found suitable for UCG stations. Pilot
production of UCG at Vastan would commence by ONGC in 2009-10.

6.3 Gas Hydrates

In accordance with the roadmap for National Gas Hydrate Programme
(NGHP), the drill ship “JOIDES Resolution” which was flagged off from Mumbai
in April 2006 for undertaking drilling/ coring /logging activities met with significant
success in establishing the presence of sizeable reserves of good quality gas
hydrates in the sedimentary basins in India. Results from the second site in KG
basin are particularly remarkable. These have shown the presence of a 128
metre thick gas hydrate layer indicating massive to dispersed gas hydrates. The
gas hydrate samples were physically collected for the first time in India in 2006-
07, which is the third country in the world after USA and Japan to do so in its
deep waters. The resource estimation of gas hydrates is in progress.

7. EQUITY OIL AND GAS FROM ABROAD

In view of unfavorable demand–supply balance of hydrocarbons in the
country, acquiring equity oil and gas assets overseas is one of the important
components of enhancing energy security. The Government is encouraging
national oil companies to aggressively pursue equity oil and gas opportunities
overseas. Oil & gas production from overseas can be swapped, sold or brought
to Indian refineries on commercial considerations. ONGC Videsh Limited (OVL)
today has a presence in 18 countries, viz. Russia, Sudan, Vietnam, Iran, Libya,
Syria, Myanmar, Iraq, Egypt, Trinidad and Tobago, Cuba, Nigeria, Sao-Tome-
Principe Joint Development Zone, Venezuela, Colombia, Brazil, Turkmenistan
and Republic of Congo. OVL has a target to acquire 20 MMTPA of O+OEG
production by 2020 but efforts are on to achieve it even earlier. OVL produced
about 8.76 Million Metric Tonnes of oil and equivalent gas during the year 2007-

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08 from its assets abroad in Sudan, Vietnam, Russia, Syria and Colombia. In
2007-08, OVL has acquired 11 blocks, while OIL-IOC consortium has acquired
one block. So far, Oil PSUs have a presence in 22 countries.

8. IMPORT OF LIQUEFIED NATURAL GAS (LNG)

8.1 Petronet LNG Limited (PLL) signed a contract with RasGas, Quatar in July
1999 for import of 7.5 million metric tonnes per annum (MMTPA) LNG for a
period of 25 years. As per the contract, supply of 5 MMTPA LNG commenced in
2004 and the supply of balance 2.5 MMTPA LNG would commence in 2009.
Further, PLL has signed a contract with RasGas, Quatar in July 2007 for supply
of 1.5 MMTPA LNG to meet the requirement of Ratnagiri Gas and Power Private
Limited (RGPPL). It is valid till September 2009. In addition to the above term-
contracts, LNG is also being sourced from spot market by PLL and Shell. During
2007-08, about 8.32 MMT LNG was imported. Out of total LNG import of 8.32
MMT during 2007-08, the share of Hazira LNG Pvt. Ltd. (HLPL) is about 2.02
MMT.

8.2 Concerted efforts are being made to augment the supply of LNG in the
country. Regarding import of 5 MMTPA of LNG from Iran, the matter is being
pursued with the Government of Iran. PLL is at advanced stage of discussion
with Gorgon, Australia for import of 2.5 MMTPA LNG for Kochi LNG Terminal.
GAIL and PLL are exploring possibility of import of LNG from various potential
suppliers.

8.3 In order to handle increased LNG import, additional infrastructure is being

created in the country. Capacity of PLL’s Dahej LNG terminal is being expanded
from the current 5 MMTPA to 10 MMTPA. HLPL’s LNG terminal is being
expanded from 2.5 MMTPA to 5 MMTPA. Dabhol LNG terminal is expected to be
completed by end of December 2008. The terminal will, however, become fully
operational only after completion of breakwater facilities in 2011.

9. IMPORT OF NATURAL GAS THROUGH TRANSNATIONAL PIPELINES

The Government has approved the proposal of the Ministry of Petroleum
and Natural Gas to pursue natural gas imports from Iran and Central Asian
countries through on-land transnational pipelines. These are:

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9.1 Iran-Pakistan-India (IPI) Gas Pipeline Project: Iran-Pakistan-India (IPI)
Gas Pipeline Project is proposed to be supplied 60 MMSCMD of gas in Phase-I,
to be shared equally between India and Pakistan and 90 MMSCMD of gas is
likely to be supplied in Phase-II to India and Pakistan. Regular discussions
through structured forums are being held on schedule. Subsequently, a
Ministerial-level meeting between India and Pakistan on the IPI Project has been
held in Islamabad on April 25, 2008. During the meeting, issues relating to
project structure, transportation tariff and transit fee were discussed.

9.2 Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline projects:

The Cabinet in its meeting held on 18th May 2006, accorded ‘in principle’ approval
to the proposal for India joining the Project. India has been admitted as an official
member of the Project in the 10th Steering Committee Meeting (SCM) of the
Project held on April 23-24, 2008 at Islamabad. The total capacity of the
Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline projects is about 90
MMSCMD and the length is about 1680 km. The length of pipeline in
Turkmenistan, Afghanistan and Pakistan up to India border is 145 km, 735 km
and 800 km respectively. 4th meeting of TWG was held during September 3-5,
2008 in Ashgabat, wherein further discussions were held on GSPA. Discussions
were also held on technical specifications of gas.

10. GAS PRICE FORMULA FOR SELLING NATURAL GAS FROM RIL’s
KG-D6 FIELD - APPROVED BY EMPOWRED GROUP OF MINISTERS (EGOM)

It has been decided that the natural gas to be produced from RIL’s KG D6
field is to be sold at a price which comes to US$4.2/ MMBTU for crude price
greater or equal to US$60/barrel. The price excludes transportation cost,
marketing margin and applicable taxes & dues.

• The price would be uniformly applicable to all sectors.

• The price would be valid for 5 years from the date of commencement of
supply.

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 II. DOWNSTREAM SECTOR

1. REFINING
Refining Capacity and Performance
The refining capacity, which was 132.47 MMTPA on 1.4.2006 increased to
148.97 MMTPA as on 1.4.2008. By the end of XI plan, it is expected to reach
240.96 MMTPA. The details of throughput and capacity utilization of refineries
are given below:
Year Installed Actual Crude Capacity
Capacity Throughput Utilisation
(MMTPA) (MMT) (%)
2005-06 128.63 126.99 99
2006-07 136.19 141.46 104
2007-08 148.97 150.81 101
2008-09 (Apr-Sep. 08) * 75.61 78.56 104
* Provisional, Applicable capacity for the period

The following table shows undertaking-wise performance of Refinery

Sector:
(Thousand Metric Tonnes)
Undertaking Installed Actual Crude Throughput
Capacity 2005-06 2006-07 2007-08 2008-09 *
as on (Apr-Sep)
1.4.2008
Public Sector 105468 96515 108031 112521 55858
IOCL (7 Refineries) 47350 38519 44001 47401 24559
HPCL (2 Refineries) 13000 13818 16652 16764 7552
BPCL(2 Refineries) 19500 10282 19784 20917 10251
CPCL (2 Refineries) 10500 10362 10401 10263 5024
KRL 6939
BRPL 2350 2356 2067 2020 1013
NRL 3000 2132 2496 2568 1342
ONCGL-Tatipaka 78 93 94 63 37
MRPL 9690 12014 12536 12525 6080
Private Sector 43500 30471 33432 38293 22702
RIL 33000 30471 31670 31795 16315
EOL 10500 1762 6498 6387
Total (19 Refineries) 148968 126986 141463 150814 78560
* Provisional

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2. DISTRIBUTION AND MARKETING OF PETROLEUM PRODUCTS

2.1 Pipeline Network:

As on 1.4.2008, the country has a network of 21 product pipelines with a
length of 9563 KM & capacity to carry 58.0 MMT of products and 2 LPG pipelines
with a length of 1850 KM & capacity to carry 3.80 MMT of LPG. Over and above
this, there are 4 crude oil pipelines of 5392 KM, with capacity of transporting 42.2
MMT. The details are as follows:
Company/ Type of Capacity Length Throughput (Thousand
Pipeline (MMTPA) (KM) Metric Tonne)
2006-07 2007-08 *
Product Pipeline
IOC (14 stretches) 29.02 5286 21000 22930
HPC (3 stretches) 12.89 2134 6740 7830
BPC 10.62 1389 3792 8050
Petronet (3 stretches) 5.44 754 2828 3499
Total Product Pipelines 57.97 9563 34360 42309
LPG Pipelines
GAIL (2 Stretches) 3.80 1850 2490 2754
Total LPG Pipeline 3.80 1850 2490 2754
Crude Pipelines
OIL 7.68 1405 6000 6070
IOC (3 Stretches) 34.50 3987 32430 35870
Total Crude Pipelines 42.18 5392 38430 41940
GRAND TOTAL 104.0 16805 75280 87003
* Provisional

2.2. Liquid Petroleum Gas (LPG)

(a) There has been substantial expansion of LPG in the country. As of
1.10.2008 there are:
• 4409 LPG markets
• 9376 LPG Distributors
• 8703 TMT of bottling capacity
• 1047 lakh LPG customers (Domestic & Non-domestic)
• 518.7 lakh DBC (double connection) consumers

(b) OMCs are in the process of setting up 1342 new LPG distributorship
mainly in rural locations. The setting up of LPG distributorships is a continuous
process and involves identifying of a suitable location, arranging land for setting
up of godown and other statutory clearances.

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(c) Apart from existing 14.2 Kg cylinder for domestic customers, industry has
introduced 5-Kg cylinders for low-income group customers. About 3.85 lakh
customers have been enrolled in the category as on 1.10.2008.. As on 1.10.2008,
LPG customer population covers approximately 53% of country’s total population
as per census of India, 2001.

2.3 Measures to check adulteration

(a) The initiatives taken by the Government/ Public Sector Oil Marketing
Companies (OMCs) in containing the menace of adulteration including diversion
of PDS Kerosene, include, inter alia, (a) Automation of retail outlets, (b)
Information Technology (IT) solutions like monitoring movement of tank trucks
(TT) through Global Positioning System (GPS), and (c) third party certification of
retail outlets.

(b) OMCs have been directed to complete automation of retail outlets (ROs)
selling more than 200 KL per month. IOC has already automated 1205 such
retail outlets. HPCL has completed automation in 1135 such ROs and BPCL in
1602 ROs.

(c) As on 31.10.2008, IOCL has completed GPS system in 16103 Tank

Trucks (TTs), HPCL in 4900 TTs and BPCL in 4800 TTs.

(d) OMCs have initiated Third Party Certification of ROs. As of 31.10.2008,

OMCs have completed 85.4% of Target ROs.

(e) A new marker system for detecting adulteration of kerosene in diesel and
petrol was launched on 4.10.2006 and is being monitored. The Government has
amended the various Control Orders governing the sale of kerosene, to give the
Marker Scheme a firm legal footing. A Committee has been set up in the Ministry
to monitor the progress of Marker Scheme. Oil Marketing Companies in the
private sector also have been asked to introduce the scheme along the lines of
the public sector OMCs. During the period of 16.02.2007 to 31.03.2008, 116783
numbers of inspections were carried out at ROs through Marker System.
Adulteration at 204 ROs has been detected. In 144 number of cases, RO dealers

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had refused marker audits. 242 cases of adulteration in TTs have also been
detected through marker test.

(f) In case the above malpractices are looked at in totality, the total No. of
ROs involved is 590 and strike rate is 0.51%. It is also mentioned that through the
conventional system, the Industry strike rate against a total inspection of 132524
ROs was 71 ROs i.e. 0.05% in 2007-08.

2.4 Composite Cylinders

(a) Government has conveyed “in principle” approval to the Public Sector Oil
Marketing Companies (OMCs) for expanding the product line by way of
introduction of composite cylinders for marketing domestic LPG, subject to there
being no subsidy element in the LPG to be marketed through these composite
cylinders.

(b) The composite cylinders are translucent and will show the level of LPG
present in the cylinder. The capacity of composite cylinders presently being
considered for marketing of LPG is approximately 10.5 Kg. LPG gas as against
the present capacity of 14.2 Kg. in the domestic cylinders.

(c) On receipt of approval from CCOE for import of Composite Cylinders,

industry intends to import cylinders by floating global tender and do test
marketing in selected cities during 2008-2009. Industry also informed that as of
now there is only one supplier of Composite Cylinders viz. M/s Ragasco, Norway
which has been approved by the CCOE. Industry has reported that they have
requested CCOE to process applications of other suppliers also, since they
intend floating a global tender.

2.5 Public Grievances Redressal System in OMCs

(a) Toll Free Numbers

In the light of numerous complaints tickling in regarding supply &
distribution of petroleum products/LPG across the country it was felt that public
grievances redressal system in the Public Sector Oil Marketing Companies needs

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to be streamlined. Following initiatives have been taken for prompt and effective
redressal of grievances of the customers :

• In order to have a more convenient, easy and effective way for the
customer to register their complaint and follow it up, OMCs have started
the service of using following Unique Toll Free telephone Numbers.

Indian Oil Corporation Ltd. (IOC) 18002333555

Bharat Petroleum Corporation Ltd. (BPC) 18002227255
18002333777 (LPG)
Hindustan Petroleum Corporation Ltd. (HPC)
18002333999 (MS/HSD)

• These numbers will be available across the country for the registration of
complaint through call centres on 24x7 basis. On registration of a
complaint, customers are given a registration number by the call centre.
Subsequently, the status of complaint can be reviewed by the customer by
citing this number to call centre.

• The complaints through the service provider of call centre is uploaded in a

website for review and initiating action by officers of the company.

• The complaint normally will be redressed by the respective offices within 2

working days and thereafter will be closed on the web portal mentioning
the action taken. The call centre will then give feed back to the
complainant whenever the customer calls again.

• If the complaint remains unresolved for 2 working days (after uploading on

the web portal), the same gets forwarded to next higher office for
reviewing at their end. After the complaint is forwarded to next higher
office if it still remains unresolved for another 2 working days then the
same shall be forwarded to next office in the hierarchy.

The above system has been put in place by OMCs from 2nd October, 2008
and nationwide advertisement in leading print media has been published. The
same is also displayed in respective corporate website. The Toll Free Number is
also being displayed in all retail outlets and distributorships.

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(b) Customer Contact
To facilitate personal redressal of complaints, at Head Office, customers
can meet senior officials on the 1st and 15th of every month between 3 and 4 pm.
All field officers covering both retail and LPG in various revenue districts will also
be available on the 1st and 15th of every month between 3 and 4 pm at
designated retail outlets/LPG distributorships so that customers can visit the
location and meet the field officers for prompt and immediate redressal of
complaints.

The performance of the above system will be constantly reviewed and the
required resources will be enhanced so that all the systems for registering
complaints are easily accessible to the customers and their grievances are
attended promptly in a definite time bound manner.

2.6. Third Party Certification of Retail Outlets

OMCs have been directed to complete third party certification of all the
ROs selling more than 100 KL per month and they have completed the same as
per their target in the 1st phase. In the 2nd phase, out of 8028 ROs, third party
certification has been completed at 7308 ROs by IOC. The balance ROs are
likely to be completed by March 2009. Out of 4607 ROs, third party certification
has been completed at 2606 ROs by BPCL. The balance ROs are likely to be
completed by January 2009.

Out of 4027 ROs, third party certification has been completed at 3400 ROs by
HPCL. The balance ROs have been planned to be completed by March 2009. As
on 30.09.2008, OMCs have completed the third party certification approx.79.9%
of the ROs.

2.7. Automation of Retail Outlets

In order to monitor the activities at ROs by adopting the latest
technological improvements, automation of ROs is being implemented. This
Ministry has directed the OMCs to complete automation of ROs selling more than
200 KL per month. Out of 6790, ROs selling more than 200 KL per month, 4104,

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ROs have already been automated by OMCs up to 30.09.2008. The balance
ROs are likely to be automated by March 2009. The figures show that as on
30.09.2008, OMCs have completed approx. 60.44% automation of the ROs
selling more than 200 KL per month.

2.8 City Gas Distribution (Piped Gas)

(a) The Government of India, Ministry of Petroleum & Natural Gas has notified
on 20.12.2006, in public interest, the Policy for Development of Natural Gas
Pipelines and City or Local Natural Gas Distribution Networks, which inter alia
seeks to promote competition and arms length business. The policy provides the
framework for regulation by the Petroleum and Natural Gas Regulatory Board
(PNGRB). Inter alia, the policy provides that at least 33% more than the capacity
requirement of the concerned entity plus the firmed up contracted capacity should
be available. This extra capacity should be available for use on common carrier
basis by any third party on open access and non discriminatory basis at
transportation rates laid down by the Board. The open access capacity will be
allocated in a transparent and objective manner by the Board through a
regulation. In the long run and with maturing of gas markets, the authorized
entities would have transportation of natural gas as their sole business activity.

(b) According to information available, Piped Natural Gas is being supplied to

7,75,119 domestic, 1287 commercial and 64 industrial consumers all over
country. There are 398 CNG stations in the country. The cities covered under the
Piped Natural Gas (PNG) network in the country are Delhi, Mumbai, Agartala,
Surat, Hazira, Junagarh, Vasva, Mora, Damka, Bhatlai, Kawas, Rajgiri, Suwali
Icchapore, Ankleshwer, Bharauch, Vadodara, Ahmedabad, Vdyanagar, Anand,
Morbi, Gandhinagar, Duliajan, Digboi, Dibrugarh, Moran, Naharkatiya, Sivsagar,
Nazira, Simaluguri and Tinsukia.

(c) Cities covered with Compressed Natural Gas (CNG) are Delhi, Mumbai,
Agartala, Bharauch, Vadodara, Ankleshwer, Gandhinagar, Hazira, Surat, Thane,
Mira-Bhayandar, Vijayawada, Hyderabad, Noida, Kanpur, Lucknow and Agra.

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(d) In order to promote investment from public as well as private sector for
inter alia city/local natural gas distribution networks throughout the country, the
Government of India has enacted “The Petroleum and Natural Regulatory Board
Act, 2006” and notified the “Policy for Development of Natural Gas Pipelines and
City or Local Natural Gas Distribution Networks”. The Board has been
constituted. The provisions of the Act (except Section 16) have been made
effective from 01.10.2007.

3. CONSUMPTION OF PETROLEUM PRODUCTS

The consumption of petroleum products during the year 2007-08 was
128.9 MMT with a growth rate of 6.8%. The consumption and growth rate since
2002-03 are as given below:
Year Consumption Growth Rate
(TMT) (%)
2002-03 104126 3.7
2003-04 107751 3.5
2004-05 111634 3.6
2005-06 113214 1.4
2006-07 120749 6.7
2007-08 128947 6.8
2008-09 (April-Sept. 08)* 64728 5.0
(61638)
*Provisional
Figure in ( ) indicates comparative consumption in 2007-08

4. IMPORTS/ EXPORTS OF CRUDE OIL AND PETROLEUM PRODUCTS

India imports over 80% of its crude oil requirement. The country is,
however, a net exporter of petroleum products. The details of import bill for last
three years, both in terms of quantity and value are given below:
Year Crude Oil Import Petroleum Product Import Total Imports
Quantity Value Quantity Value Quantity Value
Rs. US$ Rs. US$ Rs. US$
MMT Crore Million MMT Crore Million MMT Crore Million
2005-06 99.41 171702 38776 13.44 27971 6302 112.85 199673 45078
2006-07 111.50 219029 48389 17.66 41160 9068 129.16 260189 57457
Variation (%) 12.16 27.56 24.79 31.38 47.15 43.90 14.45 30.31 27.46
2007-08 * 121.67 272699 67988 22.72 61504 15255 144.39 334203 83243
Variation (%) 9.12 24.50 40.50 28.63 49.43 68.23 11.79 28.45 44.88
2007-08 *
(Apr-Sep.) 60.61 119758 29494 11.01 26177 6424 71.62 145935 35918
2008-09 *
(Apr-Sep.) 64.84 231144 54069 9.81 41959 9731 74.65 273103 63800
Variation (%) 6.98 93.01 83.32 -10.90 60.29 51.49 4.23 87.14 77.63
*Provisional

15
 Details of Exports of Petroleum Products both in terms of quantity and
value are given below:
Year Product Export Net Import
Quantity Value Quantity Value
Rs. US$ Rs. US$
MMT Crore Million MMT Crore Million
2005-06 23.46 49974 11232 89.39 149699 33845
2006-07 33.62 81094 17908 95.54 179095 39549
Variation (%) 43.33 62.27 59.43 6.88 19.64 16.85
2007-08 * 39.33 107603 26771 105.06 226600 56473
Variation (%) 16.96 32.69 49.49 9.97 26.52 42.79
2007-08 * (Apr-Sep.) 20.10 50446 12363 51.52 95489 23554
2008-09 * (Apr-Sep.) 18.40 81058 17729 56.25 192045 46072
Variation (%) -8.46 60.68 43.40 9.18 101.12 95.60
*Provisional

5. EMPOWERING OIL PSUs IN MATTERS OF IMPORT

5.1. The Cabinet in its meeting held on 8.4.2005 has decided to allow Indian
Oil Corporation Ltd (IOCL) to charter their ships for import /export of petroleum
products directly instead of going through Transchart for a period of one year.
After one year, this arrangement was reviewed and on the basis of experience of
IOCL, the Cabinet in its meeting held on 29th March, 2007 allowed IOCL to
continue the system and extended this facility to other OMCs viz. HPCL & BPCL.
All the companies were directed to follow all applicable regulations relating to
hiring of ships, including those relating to Indian Flag and Shipping on FOB basis.

5.2. Also, effective 2007-08, on a pilot basis for one year, the Boards of the oil
PSUs have been empowered to approve the strategy papers for import of crude
oil subject to guidelines issued by the Ministry of Petroleum and Natural Gas from
time to time, instead of the earlier practice of seeking Ministry’s prior approval of
the strategy papers for import. Keeping in view the experience, the Ministry has
decided to continue the present system of import of crude oil and held that the
strategy papers for import of crude oil by Oil Marketing Companies shall be sent
to the Ministry of P&NG at the end of each financial year along with projected
imports of the coming year.

6. CREATION OF STRATEGIC PETROLEUM RESERVE

Taking into account the oil security concerns of India, the Government has
decided to set up Strategic Crude Oil Storage of 5 million metric tons (MMT) at

16
three locations in the country {viz. Visakhapatnam(1.0 MMT), Mangalore (1.5
MMT) and Padur (2.5 MMT)}. The capacity of Visakhapatnam site has been
enhanced to 1.33 MMT. The proposed Strategic Crude Oil Storage would be in
underground rock cavern / concrete structures. A special purpose vehicle
namely Indian Strategic Petroleum Reserve Limited (ISPRL) as a subsidiary of
OIDB has been created for implementation and management of strategic storage
of crude oil. Crude oil from the reserves will be released by Government-
appointed High Powered Committee, in the event of any short-term disruption in
supplies, a natural calamity or any unforeseen global event leading to an
abnormal increase in prices. The project is likely to be completed by the end of
2012.

7. PETROLEUM AND NATURAL GAS REGULATORY BOARD

The Petroleum and Natural Gas Regulatory Board Act, 2006 was notified
on 3.4.2006, providing for setting up of a Regulatory Board to regulate the
refining, processing, storage, transportation, distribution, marketing and sale of
petroleum, petroleum products and natural gas excluding production of crude oil
and natural gas so as to protect the interest of consumers and entities engaged
in specific activities relating to petroleum, petroleum products and natural gas
and to ensure uninterrupted and adequate supply of these products in all parts of
the country and to promote competitive markets and for matters connected
therewith or incidental thereto. The Board has been set up and is functional.

8. PRICE AND SUBSIDY ISSUES

8.1. Global prices of crude oil and petroleum products have remained high and
volatile since 2003-04. The increase in price of crude oil and petroleum products
in the International market assumed alarming proportions with the Indian Basket
of crude reaching a high of $142.04 per barrel on 03rd July’2008. Despite the
recent softening in the international oil prices, the average price of Indian Basket
of crude oil during the current year (up to 7.11.2008) is still at $108.05 per barrel
as against an average of $79.25 per barrel during 2007-08, registering an
increase of 36 per cent. The benefit of the recent softening in the international oil
prices has been partly offset by the recent depreciation of the rupee. The rupee

17
has depreciated by around 20%, from Rs.40 per US$ in April 2008 to the current
level of Rs.47.76 per US$ on 7.11.2008.

8.2. The trend in the international prices of crude oil and major petroleum
products since March 2002 is given below:
Period Crude Oil Petrol Diesel Kerosene LPG
(Indian
Basket) $/bbl. $/bbl. $/bbl. $/MT
$/bbl.
Mar-02 23.31 26.43 23.27 23.65 194.00
2002-03 26.65 30.04 28.86 29.24 279.67
2003-04 27.97 35.01 30.39 31.11 277.02
2004-05 39.21 48.97 46.91 49.51 368.57
2005-06 55.72 64.51 64.70 69.43 481.04
2006-07 62.46 72.62 74.12 77.03 499.67
2007-08 79.25 90.76 92.91 94.33 683.49
2008-09 108.05 114.79 131.56 134.09 847.26
(Up to 7.11.08)
Apr’08 105.77 117.09 135.71 136.10 811.00
May’08 120.91 130.06 155.62 156.75 854.00
June’08 129.72 138.78 161.76 160.45 910.00
July’08 132.47 134.70 161.45 163.02 932.00
Aug’08 113.05 113.98 126.76 132.55 878.00
Sep’08 96.81 104.82 113.68 116.55 824.00
Oct’08 69.12 77.13 79.08 85.46 802.00
• Composition of Indian Basket of Crude represents average of Oman & Dubai for sour grades and Brent
(Dated) for sweet grade in the ratio of 62.3:37.7 for 2008-09 ,61.4:38.6 for 2007-08, 59.8:40.2 for the year
2006-07, 58:42 for the year 2005-06 and 57:43 for the prior periods.
• Price of kerosene & Diesel (0.5% sulphur) is for Arab Gulf Market.
• LPG Price is Saudi Aramco CP based on 60:40 butane / propane ratio.
• Price of Petrol is 92 RON unleaded for Singapore market.

8.3. Impact on Oil Marketing Companies

The oil marketing companies have incurred under-recoveries owing to
non-revision of selling prices in line with the prevailing international prices. The
year-wise under-recovery incurred by oil marketing companies are tabulated
below:
(Rs. in crore)
Under-recovery * 2005-06 2006-07 2007-08 Apr-Sep’08
PDS Kerosene and Domestic LPG 24630 28584 34625 29702
Petrol and Diesel 15370 20803 42498 63151
Total 40000 49387 77123 92853
*Gross under-recoveries before sharing by upstream oil companies/ oil bonds/ refinery discounts etc.

18
8.4 Equitable Burden Sharing
To insulate the consumer from the volatile international oil prices,
Government has been following the equitable burden sharing principle under
which the major burden of the under-recoveries incurred by the OMCs on the
sale of the sensitive petroleum products is borne by the Government, Upstream
Oil Companies and the OMCs with only a small portion of the burden being
passed on to the consumer through minimal price increases. The burden sharing
over the past few years has been as follows:
(Rs. Crore)
2005-06 2006-07 2007-08 Apr-Sep’08

Upstream Sharing 14,000 20,507 25,708 25,929

Oil Bonds 11,500 24,121 35,290 44,967

Absorbed by OMCs 14,500 4,759 16,125 21,957

Total 40,000 49,387 77,123 92,853

The prices of the sensitive petroleum products were raised on 5th June 2008 by
Rs.5/litre for petrol, Rs.3/litre for diesel and Rs.50/Cylinder at Delhi.

8.5. Upstream contribution

The amounts contributed by upstream oil companies for the last three
financial years and during the period April-Sept.’08 are tabulated below:
(Rs. Crore)
Year ONGC GAIL OIL Total

2005-06 11958 1064 978 14000

2006-07 17025 1488 1994 20507

2007-08 22000 1401 2307 25708

April-Sept.’08 22474 1745 1710 25929

8.6 Oil Bonds

During the year 2007-08, the Central Government sanctioned bonds worth
Rs. 35,290 crore to Public Sector Oil Marketing Companies (IOCL, BPCL &
HPCL) in respect of under realization for marketing sensitive petroleum products.

19
The Government has, so far, approved an amount of Rs. 44,967 crore for issue
of oil bonds to the OMCs during the year 2008-09.

9. SUBSIDY ON PDS KEROSENE AND DOMESTIC LPG

(a) The year-wise subsidy on PDS Kerosene and Domestic LPG for the years
2002-03, 2003-04, 2004-05, 2006-07, 2007-08 and the period April-Sep’2008
(estimated) is tabulated below:

LPG (Domestic)
Year Per Unit Subsidy (Rs./Cylinder)
From Govt. By Oil Total
(Budget) Companies
2002-03 67.75 62.27 130.02

2003-04 45.18 89.54 134.72

2004-05 22.58 124.89 147.47

2005-06 22.58 152.46 175.04

2006-07 22.58 156.08 178.66

2007-08 22.58 214.05 236.63

April-Sept.’08 (estimated) 22.58 306.39 328.97

SKO (PDS)
Year Per Unit Subsidy (Rs./litre)
From Govt. By Oil Total
(Budget) Companies
2002-03 2.45 1.69 4.14

2003-04 1.63 3.12 4.75

2004-05 0.82 7.96 8.78

2005-06 0.82 12.10 12.92

2006-07 0.82 15.17 15.99

2007-08 0.82 16.23 17.05

April-Sept.’08 (estimated) 0.82 31.88 32.70

20
 (b) The average subsidy per unit of selling price on Domestic LPG and PDS
Kerosene, and actual payments from the Exchequer were as follows:

From Govt. Level Domestic LPG PDS Kerosene Payments

(Budget) released from
Union Budget
(Rs. Crore)
2002-03 67.75 2.45 4495.80
rd
2003-04 At 2/3 Level 45.18 1.63 6292.44
2004-05 At 1/3rd Level 22.58 0.82 2930.31
2005-06 At 1/3rd Level 22.58 0.82 2661.99
2006-07 At 1/3rd Level 22.58 0.82 2523.76
2007-08 At 1/3rd Level 22.58 0.82 2640.60
2008-09* At 1/3rd Level 22.58 0.82 2565.00
*Budget Estimate after 5% economy cut.

10. FREIGHT SUBSIDY (FOR FAR FLUNG AREAS) SCHEME 2002

Freight subsidy for supplies and sales of products in the notified far flung
areas is provided for PDS Kerosene and Domestic LPG. The subsidy for the
year 2004-05 to 2009-2010 is to be paid at 1/3rd level of the rates for 2002-03.
The actual payments released from the Union Budget under this scheme are as
under:

Year Payments Released

(Rs. in crore)
2002-03 62.35
2003-04 58.74
2004-05 26.07
2005-06 20.97
2006-07 25.27
2007-08 28.27
2008-09 * 30.40
*Budget Estimate- After 5% economy cut.

21
 III. FINANCIAL POSITION OF THE PUBLIC SECTOR OIL
MARKETING COMPANIES

1. ABNORMAL GROWTH IN CONSUMPTION

Apart from the spiralling international oil prices, the high growth in the
consumption of Diesel, Petrol and Domestic LPG in the country is also leading to
substantial increase in under-recoveries of OMCs. The growth in OMCs’ sale of
Diesel, which was already high at 14.3% during 2007-08, increased to 16.6%
during April-September 2008. Bulk consumers have been substituting Naphtha
and Furnace Oil with Diesel as the retail selling price of Diesel was lower than
that of Naphtha and Furnace Oil. Due to abnormal growth in consumption, Diesel
alone is contributing over 50% of the total under-recoveries of OMCs during the
current year, as against 32% in 2005-06. The growth in OMCs’ sale of Petrol is
also high at 14% during April-Sept 08. The abnormal growth in demand for these
products has resulted in increase of product imports by OMCs. The higher cost of
imports, in the face of the Government-modulated domestic retail prices, has
resulted in additional losses to OMCs.

2. FINANCIAL PERFORMANCE DURING APRIL-SEPTEMBER 2008

OMCs have reported combined losses of Rs.14,431 crore during the first
half of 2008-09, as shown below:
(Rs. in crore)
Company 2006-07 2007-08 Apr-Sept.’08* Apr-Sept.’07
IOC 7499 6963 (6632) 5286
BPC 1806 1581 (3692) 1231
HPC 1571 1135 (4107) 766
Total 10876 9679 (14431) 7283
*After considering oil bonds of Rs.44967 crore & upstream assistance of Rs.25,929 crore.

3. HIGHER BORROWINGS & INTEREST BURDEN

Since internal resource generation became negative during 2008-09 and the
issue of Oil Bonds was delayed, the OMCs have had to borrow heavily. Their
combined borrowings increased to Rs.1,19,800 crore, at the end of October 2008
from Rs.66,900 crore in March 2008. Not only have the OMCs had to borrow heavily,
they have done so at much higher rates of interest. The combined interest burden of
OMCs during the first half of 2008-09 was Rs.3,376 crore as against Rs.2,925 crore
in the previous year.

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 IV. BIO-FUELS

1. Ministry of Petroleum & Natural Gas vide its notification dated 20th
September, 2006 has directed the Oil Marketing Companies (OMCs) to sell 5%
Ethanol Blended Petrol (EBP) subject to commercial viability as per Bureau of
Indian Standards specifications in entire country except North-Eastern States,
Jammu & Kashmir, Andaman & Nicobar Islands and Lakshdweep with effect from
1st November, 2006.

2. At present 5% EBP programme is being implemented in 16 States and

OMCs have finalised tenders for ethanol in all these States. The EBP releases
have since commenced at all locations in 17 States and 3 Union Territories. With
this, about 85% of the identified States have been covered. The requirement of
ethanol for the three year period is 180 crore litres. The OMCs have been able to
contract 140.4 crore litres. They have so far procured 44.22 crore litres under the
programme (as on 15.10.2008).

3. With regard to increasing the ratio of 10% blending of ethanol optional

from 2007 and making it mandatory from October, 2008, specifications for 10%
blending of ethanol with petrol have been finalized by the Bureau of Indian
Standards (BIS). Also, the Society for Indian Automobile manufacturers (SIAM)
has raised certain concerns with regard to 10% blending which need to be
considered in consultation with all the stakeholders. Upon stabilization of the 5%
EBP programme, further steps for optional and mandatory blending at 10% EBP
can be taken, subject to the factors mentioned earlier. A review meeting was held
in the Ministry on 30.5.2008 wherein it was suggested that pilot study may be
done immediately of E 10 as was initially done for 5% ethanol blending. The
participating labs would be Automotive Research Association of India (ARAI),
Indian Institute of Petroleum (IIP), I-CAT Manesar and IOC (R&D). IOC (R&D)
has made plan to take up pilot project study using 10% ethanol in U.P and
Karnataka. The report on pilot project study undertaken by IOC (R&D) along with

23
SIAM to assess the compatibility of present auto engines with 10% Blended
Ethanol is expected to be submitted by 30.6.2009.

4. Ethanol
On 20.9.2006, the Government notified that with effect from 1 November
2006, subject to commercial viability, 5 per cent ethanol blended petrol will be
sold countrywide, except North East, J&K, Lakshadweep and Andaman &
Nicobar Islands. For the purpose, the landed cost of ethanol is compared with
benchmark price of landed cost of petrol at a particular location, including
transportation, all taxes and duties paid etc. At present, Oil Manufacturing
Companies (OMC) is procuring ethanol at a basic price of Rs.21500 per kilo litre.
As on 30.9.2007, against a requirement of 1.80 million KL of ethanol for 3 years,
OMC have contracted for 1.40 million KL. So far, 0.44 million KL Ethanol has
been procured till 30.9.2008.

5. Bio-diesel
On 9.10.2005, the Ministry of Petroleum and Natural Gas had announced
a bio-diesel purchase policy which came into effect from 1.1.2006. The policy
prescribes that the oil marketing companies in the public sector shall purchase
bio-diesel of prescribed BIS specification from registered authorized suppliers
through 20 purchase centres at a uniform price of Rs. 25 per litre. The purchase
price can be reviewed by the oil companies every six months with due
consideration to market conditions. In accordance with this policy, the revised
procurement price was fixed at Rs.26.50 litre, delivered at purchase locations and
inclusive of all taxes. However, so far, no bio-diesel has been offered for
purchase under the policy.

24
 V. INTERNATIONAL CO-OPERATION

With a view to addressing its energy concerns, India is continually

committed to bilateral cooperation with foreign countries both in the upstream and
downstream sectors. During the current financial year following meeting/ MOUs
have been taken place:

1. India-Romania Joint Working Group (JWG) Meeting

Second Session of India-Romania Joint Working Group was held in New
Delhi India on 3-4 March, 2008. The possibility of Indian Companies participation
in the upgradation and modernization of refineries in Romania was discussed.
GAIL sought details on underground gas storage from ROMGAZ to evaluate and
to explore possibility of initiation of cooperation in this field in India. It was
decided that GAIL and ROMGAZ may further evaluate possibility of initiation of
cooperation in the field of CNG/piped gas distribution network in Romania.

2. India-Norway Joint Working Group Meeting

The 4th Joint Working Group meeting between Norway and India was held
on 11th March, 2008 in OSLO, Norway. In the meeting various issues of
cooperation in hydrocarbon sector with Norway were discussed.

3. India-Turkey Joint Working Group Meeting

The second session of the India Turkey JWG on cooperation on
hydrocarbons was held in Ankara on 21-22 May 2008. Both sides expressed their
appreciation for the successful partnership of TPAO and ONGC Videsh Ltd. in
the exploration blocks in Libya. Considering the ample opportunities for
cooperation in the E&P sector in Eurasia, North and West Africa, Middle East
including Iran and Iraq and South East Asia, both side agreed to encourage their
companies to facilitate technical and commercial discussions for partnership
arrangements. Indian side expressed its interest in Black Sea Exploration

25
Licenses currently available for oil companies. In addition, following areas were
identified for further cooperation between India & Turkey:
• Cooperation in the Field of Pipelines.
• Setting up of Refinery in Turkey.
• Technology and know-How sharing

4. India-US Energy Dialogue

The Working Group on Oil and Gas constituted under India-US Energy
Dialogue met on 31st March, 2008 in New Delhi. Thereafter, an MOU between the
Ministry of Petroleum and Natural Gas and the Department of Energy (DOE),
United States of America was signed on 4th April,2008 in New Delhi for
Cooperation in the sector of Gas Hydrates. The aim of this MOU is to enhance
cooperation between the DGH and the DOE for understanding the geologic
occurrence, distribution and production of natural gas hydrates along the
continental margin of India and in the USA.

5. India and Turkmenistan

An MOU between the Ministry of Petroleum and Natural Gas and the
Ministry of Oil /Gas Industry and Mineral Resources of Turkmenistan was signed
on 5th April, 2008 at Ashgabat, Turkmenistan in the presence of Shri E. Ahamed,
MoS, External Affairs on behalf of the Ministry of P&NG of India and Mr. T.
Tagiev, Deputy Chairperson of the Cabinet responsible for Ministry of Oil/Gas
Industry and Mineral Resources of Turkmenistan. The objective of the MOU is to
establish a cooperative institutional relationship to develop bilateral cooperation
in oil and gas sector. India formerly joined the Turkmenistan–Afganistan-
Pakistan-India gas pipeline project in April, 2008.

6. Joint Venture between OVL and CVP, Venezuela

A delegation led by Minister of Petroleum & Natural Gas visited Venezuela

on 08-09 April, 2008. A Joint Venture between ONGC- Videsh Limited and CVP
was signed relating to San Cristobal oil field in which OVL has got 40%
participating interest and PDVSA has 60% participating interest. They will jointly
develop the field to double the oil production. This Joint Venture will also explore

26
the potential of discovering more hydrocarbons in the unexplored area of the
project and also explore employing Enhanced Oil Recovery(EOR) techniques to
improve oil recovery rate in the field. Venezuela is one of the largest oil producing
countries in the world, with about 87 billion barrels of proven conventional oil
reserves ( OPEC 2006). It has a huge non-conventional oil deposits (heavy oil)
approximately equal to the world’s reserves of conventional oil. Most of these
deposits are located in the Orinoco oil belt.

The participation of OVL in the San Cristobal project is expected to open

more avenues for bilateral cooperation. OVL has also entered into a
Technological Cooperation Agreement with PDVSA CVP for joint research and
training activities. Under this Agreement ONGC has trained a batch of drilling
engineers from PDVSA through a customized 25 week long course.

7. MOU between India and Brazil

An MOU between the Ministry of Mines of Energy of the Government of
the Federative Republic of Brazil and the Ministry of Petroleum and Natural Gas
was signed 16th April, 2008 at Brasilia

8. India-South Africa Joint Working Group Meeting

India- South Africa JWG was held at New Delhi on 30th July, 2008 to
exchange views on enhancing business cooperation between India and South
Africa in the hydrocarbons sector. The following areas were identified for bilateral
cooperation:
• Setting up of LPG infrastructure in South Africa
• Coal to Liquid Technology (CTL) and Gas to Liquid Technology(GTL)
• Training to South African Nationals in Hydrocarbon sector.
• CNG infrastructure in South Africa
• Refineries and pipelines projects.

Ms. B. P. Sonjica, Minister for Mineral and Energy of South Africa met
Minister of Petroleum and Natural Gas, Shri Murli Deora on 16.10.2008 to
discuss strengthening of bilateral cooperation in oil and gas sector.

27
9. India –Kazakhstan Joint Working Group meeting
The 2nd India- Kazakhstan Joint Working Group Meeting on Hydrocarbon
sector was held on 25.8.2008 in New Delhi. OVL is actively participating in E&P
sector in Kazakhstan. OVL & KazMunaiGaz (KMG) will make efforts to address
various issues in E&P sector on priority.

10. MOU between India and Colombia

An MOU on cooperation in the hydrocarbon sector between the Ministry of
Petroleum and Natural Gas and the Ministry of Mines and Energy, Govt. of
Republic of Colombia was signed, in New Delhi, on 5th September, 2008 by Shri
Murli Deora, Minister of Petroleum & Natural Gas and Mr. Hernan Martinez,
Minister of Mines and Energy of Colombia. The objective of this MoU is to
establish a cooperative institutional framework for the both countries to facilitate
and enhance bilateral cooperation in the oil and gas sector.

11. India-Russia JWG meeting on Energy

A high level delegation led by Minister (P&NG) visited Russia on 5th
November, 2008 to enhance bilateral cooperation in the field of oil and gas.
Thereafter, 14th India-Russia Joint Working Group Meeting on Energy was held
on 7-8 November, 2008 in New Delhi. The following areas were identified for
bilateral cooperation during the JWG:
• India’s desire for formation of joint venture between ONGC Videsh Limited
and JSC “Rosneft” for taking up exploration and development projects in
East Siberia;
• India’s interest in joint bidding with designated Russian company for Trebs
and Titov in Timan Pechora Region;
• ONGC’s interest in joining Vankor field with JSC “Rosneft”.
• India’s keenness to purchase LNG to meet country’s growing energy
needs.

12. India-CIS Round Table on Hydrocarbons

Ministry of Petroleum and Natural Gas, in association with FICCI, is
organizing the India-CIS Round Table on Hydrocarbons on 25-26 November,
2008 in New Delhi. This will provide platform for enhancing cooperation in
hydrocarbon sector between India and CIS countries.
********************

28
 MINISTRY OF PETROLEUM & NATURAL GAS

BACKGROUND MATERIAL FOR ECONOMIC EDITORS’

CONFERENCE

SUBJECT INDEX
Items Page
No.
Background 1
I. UPSTREAM SECTOR
1. Exploration of Domestic Oil and Gas 2
2. Domestic Reserves and Production
2.1 Reserves 3
2.2 Crude Oil Production 3
2.3 Natural Gas Production 4
3. Crude Oil & Natural Gas Production from KG Basin 4
4. Improved Oil Recovery/Enhanced Oil Recovery (IOR/EOR) 5
5. Development of Marginal Fields of ONGC 5
6. Domestic Exploration of Other Gaseous Fuel
6.1 Coal Bed Methane (CBM) 5
6.2 Underground Coal Gasification (UCG) 6
6.3 Gas Hydrates 6
7. Equity Oil and Gas from abroad 6
8. Import of Liquefied Natural Gas (LNG) 7
9. Import of Natural Gas through Transnational Gas Pipelines 7
9.1 Iran-Pakistan-India (IPI) Gas Pipeline Project 8
9.2 Turkmenistan-Afghanistan-Pakistan-India (TAPI) Gas Pipeline 8
Projects
10. Gas Price Formula for selling Natural Gas from RIL’s KG-D6 Field- 8
Approved by Empowered Group of Ministers
II. DOWNSTREAM SECTOR
1. Refining
Refining Capacity and Performance 9
2. Distribution and Marketing of Petroleum Products
2.1. Pipeline Net Work 10
2.2. Liquid Petroleum Gas (LPG) 10
2.3. Measures to Check Adulteration 11
2.4. Composite Cylinders 12
2.5. Public Grievances Redressal System in MOCs 12
2.6.Third Party Certification of Retail Outlets 14
2.7. Automation of Retail Outlets 14
2.8. City Gas Distribution (Piped Gas) 15
3. Consumption of Petroleum Products 16
4. Imports/Exports of Crude Oil and Petroleum Products 16
5. Empowering Oil PSUs in matters of Import 17

29
6. Creation of Strategic Petroleum Reserve 17
7. Petroleum and Natural Gas Regulatory Board 18
8. Price and Subsidy Issues
8.1 Prices of Crude Oil & Petroleum Products 18
8.2 Trend in the International Prices of Crude Oil and Major Petroleum 19
Products
8.3 Impact on Oil Marketing Companies 19
8.4 Equitable Burden Sharing 20
8.5 Upstream Contribution 20
8.6 Oil Bonds 20
9. Subsidy on PDS Kerosene and Domestic LPG 21
10. Freight Subsidy (For Far Flung Areas) Scheme 2002 22
III. FINANCIAL POSITION OF THE PUBLIC SECTOR OIL
MARKETING COMPANIES
1. Abnormal Growth in Consumption 23
2. Financial Performance during April-September 2008 23
3. Higher Borrowings & Interest Burden 23
IV. BIO-FUELS
1. Marketing of Ethanol Blending Petrol (EBP) 24
2. Ethanol 25
3. Bio-Diesel 25
V. INTERNATIONAL CO-OPERATION
1. India-Romania Joint Working Group Meeting 26
2. India-Norway Joint Working Group Meeting 26
3. India-Turkey Joint Working Group Meeting 26
4. India-US Energy Dialogue 27
5. MOU signed between India &Turkmenistan 27
6. Joint Venture between OVL and CVP, Venezuela 27
7. MOU signed between India & Brazil 28
8. India-South Africa Joint Working Group Meeting 28
9. India-Kazakhstan Joint Working Group Meeting 29
10. MOU signed between India and Colombia 29
11. India-Russia JWC Meeting on Energy 29
12. India-CIS Round Table on Hydrocarbons 29

30